Bank of Korea freezes key rate for 6th month

(ATTN: RECASTS lead; ADDS statement by BOK in paras 3-4)
By Kim Soo-yeon
SEOUL, Aug. 11 (Yonhap) -- South Korea's central bank kept its key interest rate
on hold for the sixth straight month on Tuesday, saying that it would maintain
its credit easing policy for the time being due to still lingering uncertainty
over the economy.
In a monthly policy meeting, the Bank of Korea (BOK) left the benchmark seven-day
repo rate unchanged at a record low of 2 percent, as widely expected. The central
bank lowered the rate by a total of 3.25 percentage points between October and
February in a bid to bolster the slumping economy.
"In the coming months, the Korean economy is likely to maintain its positive
on-quarter growth trend, but uncertainties persist," the BOK said in a statement.
"Consumer prices are likely to pick up due to the run-up in oil prices, but the
upswing will be limited."
Given economic uncertainties, the BOK said it will maintain its accommodative
monetary policy for the time being and focus its future policy on bolstering
growth and stabilizing the financial markets.
A batch of economic data are underpinning rising optimism that Asia's
fourth-largest economy is bottoming out, although the economic outlook is still
murky due to slumps in major advanced countries, leading policymakers to strike a
cautious note about the pace of the economic recovery.
South Korea's industrial output rose 5.7 percent in June from a month earlier,
marking the sixth straight monthly expansion. The country logged a trade surplus
of US$5.14 billion in July, lending firm support to the Korean currency, which
has gained about 28 percent against the U.S. dollar since early March.
Despite rising prospects for an economic rebound, experts say that it is too
early for the central bank to end its softer monetary stance in the near term.
The Korean economy grew 2.3 percent in the second quarter from three months
earlier, the fastest pace in over five years, on the back of economic stimulus
packages. Experts say that as the effects of strong fiscal spending could wane
down the road, the local economy may not be able to sustain the rapid pace of
recovery in the second half.
Economists say the BOK may raise the rate as early as next year, but before doing
so it is likely to gradually soak up ample liquidity by reversing unconventional
measures that it adopted in the midst of the global financial turmoil.
The government has reiterated that it will stick to its "expansionary" economic
policy, as it is premature to say that the economy is making a full-blown
recovery.
South Korea's consumer prices rose 1.6 percent in July from a year earlier, the
slowest pace in more than nine years, easing concerns that inflation may hamper
an economic recovery and spark asset bubbles.
sooyeon@yna.co.kr
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